New Check Software to Let Merchants Cash in on Check 21

With the effective date for the Check Clearing for the 21st Century (Check 21) Act only 22 days away, few electronic payments observers doubt that the efficiencies of check imaging and image exchange will benefit banks. A lingering question, though, has been how much it will benefit retailers who accept large volumes of paper checks. At least one vendor has already begun marketing an image-exchange product to groceries, drugstores, and other such merchants on the grounds that imaging will save them money and speed up funds availability. VECTORsgi, an Addison, Texas-based software company, has started approaching merchants to sell its Advance Image Deposit system, which relies on imaging and transmission from a personal computer at stores' service counters rather than in-lane, and expects it “will start ramping up” sales of the product by late 2005, says Phillip Yarbrough, vice president for e-payments and corporates at the company. Stores that adopt the product will save about a third of the check expense they now have tied up in bank deposit fees, clerical and handling costs, and transportation costs, the company says. Yarbrough estimates this total cost now comes to about 35 cents per check, including deposit fees of about 6 cents. Images, he says, will slice that deposit charge to about a penny. Service-desk prep time, meanwhile, can be cut by about half. At the same time, banks will get same-day or next-day funds availability, along with the benefits that brings in avoiding bounced checks. VECTORsgi, which designed the software that runs the new image-exchange network operated by the Small Value Payments Co. (SVPCo.), will charge licensing fees for its software on a per-transaction basis, Yarbrough says. No equipment beyond a single scanner and a PC at the service counter is required. The software would be installed at both the PC and at a server at the chain's headquarters. The system would work by having in-lane cashiers deliver bundles of checks to the service desk throughout the day. Clerks at the service counter would scan the checks to capture MICR data and create an image, with the software checking image quality and such things as payee endorsement and courtesy and legal amounts. Images can then be transmitted to the server at headquarters at various times during the day. Yarbrough says the system does so much to mimic the imaging work banks do that they will “have a hard time rationalizing anything higher than a penny [in deposit fees for on-us items]. It's already balanced, already imaged, and ready to post.” The server software at the chain's headquarters would sort checks by bank and prepare cash letters for deposit. Yarbrough recommends that retailers open or maintain accounts at banks that control a substantial amount of check volume to increase the odds that any given check can be handled as an on-us item. Half the checks in the U.S., he says, are drawn on seven of the nation's largest banks. Yarbrough says Advance Image Deposit is intended for any merchant that takes a large volume of checks, usually a minimum of 150 per day per store. One-third of all transactions at supermarkets, he says, are checks, which represent half the payment dollar volume. That puts groceries high on his target list. Chances are these merchants already have the necessary equipment. The system will work with a wide array of scanner gear, which typically runs $1,500 to $2,000 at single-unit prices. The scanners link to the PCs via USB cables. But many banks still aren't ready for Check 21, so Yarbrough is biding his time, calling on retailers and demonstrating the product. He looks for the system to begin taking off late next year.